EAL ESTATE SETTLEMENT PROCEDURES ACT OF 1974

[Public Law 93-533; 88 Stat. 1724; 12 U.S.C. 2601 et seq.]

SHORT TITLE

SECTION 1. [12 U.S.C. 2601 note] This Act may be cited as the eal Estate Settlement Procedures Act of 1974".

FINDINGS AND PURPOSE

SEC. 2. [12 U.S.C. 2601] (a) The Congress finds that signifiat reforms in the real estate settlement process are needed to inre that consumers throughout the Nation are provided with ater and more timely information on the nature and costs of the tlement process and are protected from unnecessarily high setment charges caused by certain abusive practices that have deloped in some areas of the country. The Congress also finds that has been over two years since the Secretary of Housing and ban Development and the Administrator of Veterans' Affairs bmitted their joint report to the Congress on "Mortgage Settleent Costs" and that the time has come for the recommendations · Federal legislative action made in that report to be impleented.

(b) It is the purpose of this Act to effect certain changes in the ttlement process for residential real estate that will result

(1) in more effective advance disclosure to home buyers and sellers of settlement costs;

(2) in the elimination of kickbacks or referral fees that tend to increase unnecessarily the costs of certain settlement services;

(3) in a reduction in the amounts home buyers are required to place in escrow accounts established to insure the payment of real estate taxes and insurance; and

(4) in significant reform and modernization of local record keeping of land title information.

DEFINITIONS

SEC. 3. [12 U.S.C. 2602] For purposes of this Act

(1) the term "federally related mortgage loan" includes any loan (other than temporary financing such as a construction loan) which

(A) is secured by a first or subordinate lien on residential real property (including individual units of condominiums and cooperatives) designed principally for the occupancy of from one to four families, including any such secured loan, the proceeds of which are used to prepay or pay off an existing loan secured by the same property; and

(B)(i) is made in whole or in part by any lender the deposits or accounts of which are insured by any agency of the Federal Government, or is made in whole or in part by any lender which is regulated by any agency of the Federal Government; or

(ii) is made in whole or in part, or insured, guaranteed, supplemented, or assisted in any way, by the Secretary or any other officer or agency of the Federal Government or under or in connection with a housing or urban development program administered by the Secretary or a housing or related program administered by any other such officer or agency; or

(iii) is intended to be sold by the originating lender to the Federal National Mortgage Association, the Government National Mortgage Association, the Federal Home Loan Mortgage Corporation, or a financial institution from which it is to be purchased by the Federal Home Loan Mortgage Corporation; or

(iv) is made in whole or in part by any "creditor", defined in section 103(f) of the Consumer Credit Protection Act (15 U.S.C. 1602(f)), who makes or invests in residen tial real estate loans aggregating more than $1,000,000 per year, except that for the purpose of this Act, the term "creditor" does not include any agency or instrumentality of any state;

(2) the term "thing of value" includes any payment, ado vance, funds, loan, service, or other consideration;

(3) the term "settlement services" includes any service pro ze vided in connection with a real estate settlement including, bu not limited to, the following: title searchers, title examinations the provision of title certificates, title insurance, services ren dered by an attorney, the preparation of documents, property surveys, the rendering of credit reports or appraisals, pest and fungus inspections, services rendered by a real estate agent or broker, the origination of a federally related mortgage loan (in cluding, but not limited to, the taking of loan applications, loan processing, and the underwriting and funding of loans), and the handling of the processing, and closing or settlement;

(4) the term "title company" means any institution which is qualified to issue title insurance, directly or through its agents, and also refers to any duly authorized agent of a title company;

(5) the term "person" includes individuals, corporations associations, partnerships, and trusts;

(6) the term "Secretary" means the Secretary of Housing and Urban Development;

(7) the term "affiliated business arrangement" means an arrangement in which (A) a person who is in a position to refer business incident to or a part of a real estate settlement serv ice involving a federally related mortgage loan, or an associate of such person, has either an affiliate relationship with or a direct or beneficial ownership interest of more than 1 percent in a provider of settlement services; and (B) either of such per

sons directly or indirectly refers such business to that provider or affirmately influences the selection of that provider; and

(8) the term "associate" means one who has one or more of the following relationships with a person in a position to refer settlement business: (A) a spouse, parent, or child of such person; (B) a corporation or business entity that controls, is controlled by, or is under common control with such person; (C) an employer, officer, director, partner, franchisor, or franchisee of such person; or (D) anyone who has an agreement, arrangement, or understanding, with such person, the purpose or substantial effect of which is to enable the person in a position to refer settlement business to benefit financially from the referals of such business.

UNIFORM SETTLEMENT STATEMENT

SEC. 4. [12 U.S.C. 2603] (a) The Secretary, in consultation th the Administrator of Veterans' Affairs, the Federal Deposit Inance Corporation, and the Director of the Office of Thrift Superion, shall develop and prescribe a standard form for the statent of settlement costs which shall be used (with such variations may be necessary to reflect differences in legal and administrae requirements or practices in different areas of the country) as è standard real estate settlement form in all transactions in the ited States which involve federally related mortgage loans. Such m shall conspicuously and clearly itemize all charges imposed on the borrower and all charges imposed upon the seller in conction with the settlement and shall indicate whether any title inrance premium included in such charges covers or insures the der's interest in the property, the borrower's interest, or both. e Secretary may, by regulation, permit the deletion from the m prescribed under this section of items which are not, under al laws or customs, applicable in any locality, except that such gulation shall require that the numerical code prescribed by the cretary be retained in forms to be used in all localities. Nothing this section may be construed to require that that part of the andard form which relates to the borrower's transaction to be furshed to the seller, or to require that that part of the standard rm which relates to the seller be furnished to the borrower.

(b) The form prescribed under this section shall be completed id made available for inspection by the borrower at or before setment by the person conducting the settlement, except that (1) e Secretary may exempt from the requirements of this section ttlements occurring in localities where the final settlement stateent is not customarily provided at or before the date of settleent, or settlements where such requirements are impractical and the borrower may, in accordance with regulations of the Secetary, waive his right to have the form made available at such me. Upon the request of the borrower to inspect the form precribed under this section during the business day immediately receding the day of settlement, the person who will conduct the ettlement shall permit the borrower to inspect those items which re known to such person during such preceding day.

SPECIAL INFORMATION BOOKLETS

SEC. 5. [12 U.S.C. 2604] (a) The Secretary shall prepare and distribute booklets to help persons borrowing money to finance the purchase of residential real estate better to understand the nature and costs of real estate settlement services. The Secretary shall distribute such booklets to all lenders which make federally related mortgage loans.

(b) Each booklet shall be in such form and detail as the Secretary shall prescribe and, in addition to such other information as the Secretary may provide, shall include in clear and concise language

(1) a description and explanation of the nature and purpose of each cost incident to a real estate settlement;

(2) an explanation and sample of the standard real estate settlement form developed and prescribed under section 4;

(3) a description and explanation of the nature and purpose of escrow accounts when used in connection with loans secured by residential real estate;

(4) an explanation of the choices available to buyers of res idential real estate in selecting persons to provide necessary services incident to a real estate settlement; and

(5) an explanation of the unfair practices and unreasonable or unnecessary charges to be avoided by the prospective buyer with respect to a real estate settlement.

(c) Each lender shall include with the booklet a good faith esti mate of the amount or range of charges for specific settlement services the borrower is likely to incur in connection with the settlement as prescribed by the Secretary. Such booklets shall take into consideration differences in real estate settlement procedures which may exist among the several States and territories of the United States and among separate political subdivisions within the same State and territory.

(d) Each lender referred to in subsection (a) shall provide the booklet described in such subsection to each person from whom it receives or for whom it prepares a written application to borrow money to finance the purchase of residential real estate. Such book let shall be provided by delivering it or placing it in the mail not later than 3 business days after the lender receives the application, but no booklet need be provided if the lender denies the application for credit before the end of the 3-day period.

(e) Booklets may be printed and distributed by lenders if their form and content are approved by the Secretary as meeting the re quirements of subsection (b) of this section.

SERVICING OF MORTGAGE LOANS AND ADMINISTRATION OF ESCROW

ACCOUNTS

SEC. 6. [12 U.S.C. 2605] (a) DISCLOSURE TO APPLICANT RELATING TO ASSIGNMENT, SALE, OR TRANSFER OF LOAN SERVICING.Each person who makes a federally related mortgage loan shall dis close to each person who applies for the loan, at the time of application for the loan, whether the servicing of the loan may be assigned, sold, or transferred to any other person at any time while the loan is outstanding.

(b) NOTICE BY TRANSFEROR OR1 LOAN SERVICING AT TIME OF

ANSFER.

(1) NOTICE REQUIREMENT.-Each servicer of any federally related mortgage loan shall notify the borrower in writing of any assignment, sale, or transfer of the servicing of the loan to any other person.

(2) TIME OF NOTICE.—

(A) IN GENERAL.-Except as provided under subparagraphs (B) and (C), the notice required under paragraph (1) shall be made to the borrower not less than 15 days before the effective date of transfer of the servicing of the mortgage loan (with respect to which such notice is made).

(B) EXCEPTION FOR CERTAIN PROCEEDINGS.-The notice required under paragraph (1) shall be made to the borrower not more than 30 days after the effective date of assignment, sale, or transfer of the servicing of the mortgage loan (with respect to which such notice is made) in any case in which the assignment, sale, or transfer of the servicing of the mortgage loan is preceded by

(i) termination of the contract for servicing the loan for cause;

(ii) commencement of proceedings for bankruptcy of the servicer; or

(iii) commencement of proceedings by the Federal Deposit Insurance Corporation or the Resolution Trust Corporation for conservatorship or receivership of the servicer (or an entity by which the servicer is owned or controlled).

(C) EXCEPTION FOR NOTICE PROVIDED AT CLOSING.— The provisions of subparagraphs (A) and (B) shall not apply to any assignment, sale, or transfer of the servicing of any mortgage loan if the person who makes the loan provides to the borrower, at settlement (with respect to the property for which the mortgage loan is made), written notice under paragraph (3) of such transfer.

(3) CONTENTS OF NOTICE.-The notice required under paragraph (1) shall include the following information:

(A) The effective date of transfer of the servicing described in such paragraph.

(B) The name, address, and toll-free or collect call telephone number of the transferee servicer.

(C) A toll-free or collect call telephone number for (i) an individual employed by the transferor servicer, or (ii) the department of the transferor servicer, that can be contacted by the borrower to answer inquiries relating to the transfer of servicing.

1So in law.

(D) The name and toll-free or collect call telephone number for (i) an individual employed by the transferee servicer, or (ii) the department of the transferee servicer, that can be contacted by the borrower to answer inquiries relating to the transfer of servicing.